Renters are being hit harder by inflation than homeowners

Renters and homeowners are experiencing inflation differently, according to new data from Bank of America - and, unsurprisingly, renters are taking the hit.

Using Bank of America internal data to identify homeowners and renters by housing-related payments in bank accounts - mortgage payments, homeowner association fees or rent payments - analysts found that a wedge has opened between spending by renters and homeowners. Renters are seeing weaker spending growth outside of housing.

Two things are causing the split in spending.

First, while the majority of homeowners' monthly payments have not risen, the cost of renting has surged. Rent inflation jumped from around a 2% year-over-year increase in 2021 to 8.8% year over year in March 2023, according to the Consumer Price Index, although it has moderated marginally in recent months.

Meanwhile, the majority of US homeowners with outstanding mortgage balances have fixed interest rates that were locked in at ultra-low levels prior to the slew of recent interest rate hikes from the Federal Reserve.

Higher inflation and interest rate hikes have caused mortgage rates to climb from an average rate for a 30-year fixed mortgage of 2.65% in January 2021 - the lowest average weekly rate since the beginning of Freddie Mac's records going back to 1971 - to last week's 6.81%, according to Freddie Mac.

The analysts say those homeowner households are not yet feeling the direct impact from rising rates. Only the handful of total homeowners who got a mortgage after early 2022 or those with floating mortgage rates (a very small number) are feeling pinched.